Pitfalls of relying only on P/E ratios

P/E (price earnings ratio) is a measure often used and cited for stock analysis. Commentators will often appeal to the masses by quoting lines of: “Buy this stock now! It is selling at such a low P/E ratio” 

But is it a reliable measure? Let’s use the complete past 3 year financial results (excluding one-offs) of Ezion Holdings and Penguin and the share price these companies were selling for slightly after the announcement of their full year financial results on the SGX. 

FY end     Ezion EPS Share price (start Mar) P/E ratio
2013 16.06 163.5 10.2
2014 16.53 97.6 5.9
2015 2.33 62.5 26.8

 

FY end   Penguin EPS Share price (start Mar) P/E ratio
2013 2.49 15.2 6.10
2014 4.56 21.5 4.71
2015 1.41 13 9.29
 *All figures above are …
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